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The unintended consequences of ESG investing
With investors continuing to focus on the benefits to the world by investing with an environmental, social and governance lens, a fund manager as highlighted the flipside for developing world economies.
The unintended consequences of ESG investing
With investors continuing to focus on the benefits to the world by investing with an environmental, social and governance lens, a fund manager as highlighted the flipside for developing world economies.
During a sustainability investment briefing, portfolio manager Alex Duffy highlighted the impact on poorer nations if the price of coal was to increase for environmental outcomes.
Mr Duffy explained: “If you look at inflation, the Indian consumer price inflation basket is something like 30 per cent energy and 40 per cent food, and most energy is fossil fuel.
“So, you can imagine what happens to Indian consumer budgets, particularly at the bottom end of the population pyramid, in terms of the wealth demographic in India where the coal price starts going up.”
While the fund manager highlighted the environmental benefits, he said “there are very severe social implications from targets and environmental outcomes in fossil fuels”.
“It isn’t clear to me that debate is being had as readily as it should be. I don’t have an answer to it. But I like to call that out as something where it’s an unintended consequence,” Mr Duffy continued.
“There are parts of the world because of the different stages of economic development that don’t have a choice. So, the social side is an important consideration.”
While discussing the social implications of moving to a greener world, Fidelity noted there is no justification to building additional coal-fired plants.
“We can all have a reasonable view around the existing stock of energy and the ways we can transition that existing stock of energy,” said Fidelity’s global head of stewardship and sustainable investing, Jenn-Hui Tan.
“It’s very hard to see why you’d finance new construction of coal-fired power both from a financial and an ecological perspective.”
nestegg has previously discussed why investors shouldn’t exclude polluting sectors from their investment portfolio.
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